FHA Guidelines. Declining Markets: Max loan amount stated in the LTV/CLTV grids not available in all areas. &

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1 PRODUCT 30 / 15 YEAR 5/1 ARM CATEGORY LTV OTHER RESTRICTIONS FHA Guidelines FHA ADP Codes ADP Codes for DE Property Types 203 B 703 SFR Condo ARM Site Condo Flip Transactions: Restrictions apply (see FHA Flip Guidelines) *** SEE SEPARATE GUIDELINES FOR FHA STREAMLINE REFINANCES *** STATE RESTRICTIONS Declining Markets: Max loan amount stated in the LTV/CLTV grids not available in all areas. & All loans must adhere to State and Local Property Laws (carbon monoxide, smoke COUNTY LIMITS detectors and lead based paint guidelines) Loan amount county specific (refer to HUD MSA Link below) PROPERTY SFR detached and attached units RESTRICTIONS PUDs Condominiums (requires verification FHA approved in FHA connection) 50% max project concentration. SEE ML guide page 70 appendix B for condo warranty form 2 4 Units 3 4 Units (see reserve requirements) OCCUPANCY Owner Occupied It is permissible to add a non occupant co borrower to a purchase or a refinance transaction as long as the occupant borrower has an established credit history and credit score. The credit score of the non occupant co borrower may not be used to satisfy FHA requirements. Non occupant borrower must be family member or a demonstrated relationship must be present. UNDERWRITING DU Approve/Eligible ONLY (must adhere to documentation & eligibility rules to METHOD qualify) Manual Underwrites Not Allowed QUALIFYING & RATIOSs minimum 620 fico. / 640 Jumbo DTI 4% / 5% *** ll loans require DE Underwriter approval. DTI ratios are at DE nderwriter discretion in all cases. See Underwriting for requirements on ARM product QUALIFYING Note Rate RATE 30 Year / 15 Year 5/1 ARM ESCROW WAIVER Not Allowed Impounds are required DOCUMENTATION REQUIREMENTS Loan will have to be run through DU and receive Approve/Eligible. O The LT and page 3 of A must include underwriter s signature, date and ZFHA. O Page 3 of the A, Date Approval Expires = 90 calendar days from approval date. LDP/GSA required on all parties USING MHL LDP / GSA worksheet. CAIVRS required on all borrowers. FHA Streamline does not require CAIVRS (this is the only exception) A Requirements FORM Who SIGNS WHEN TO SIGN URLA Loan Application Initial Borrower (s) and Loan Officer Application Initial HUD Addendum 92900a pg1 Loan Officer or Lender for TPO Application Initial HUD Addendum 92900a pg2 Borrower (s) Application URLA Loan Application Final Borrower (s) and Loan Officer Prior to or at closing Final HUD Addendum 92900a pg1 Lender (DE Underwriter or officer authorized to bind) Initla Approval Final HUD Addendum 92900a pg2 Borrower (s) At closing Final HUD Addendum 92900a pg3 DE Underwriter Final Approval Final HUD Addendum 92900a pg4 Borrower; Lender At Closing Post Closing FHA /18/13

2 CREDIT SCORE RESTRICTIONS BORROWER ELIGIBILITY EMPLOYMENT VERIFICATION AND INCOME TYPES FHA Guidelines Full 3 merge credit report required with borrower showing a minimum of two credit scores. All mortgages must have a mortgage history of 0 x 30 in the last 12 months Representative credit score: o Use middle of 3 or lowest of 2 o Use middle representative score from all borrowers US Citizens First time homebuyers Permanent & Non permanent Aliens Non occupant co borrowers (related or demonstrated relationship) All Borrowers must provide evidence of a Valid Social Security Number. (i.e. Social Security card, pay stub, W 2, print out from Social Security Admin.) A printed copy of the MHL processed social security verification is also acceptable. Must meet all employment conditions per DU Approve/Eligible Verbal or Full Verification of Employment required at the time of final loan approval. Verbal Verification of Employment (VVOE) dated within 10 days prior to the Note date. Self Employed Borrowers P & L and Balance Sheet is required if the borrower s tax year ending has elapsed by more than 3 months. If using the borrower(s) YTD P & L to qualify, a balance sheet and audited P & L must be provided. Borrowers who have sufficient declining income compared to the previous 2 years, require an explanation from accountant as to the stability of self employment income. This requires careful underwriting consideration. Amended tax returns cannot be used to qualify if they are amended after the application or purchase contract date. Amended returns that are dated before the application or purchase contract date must be validated with a record of account. Tax transcripts are not allowed to take the place of a tax return when it is required. Social Security Administration (SSA) income including, but not limited to, Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), and Social Security income, can be used to qualify the borrower if the income has been verified, and is likely to continue for at least a three year period from the date of closing. o MHL must verify income by obtaining from the borrower any of the following documents: Federal tax returns; The most recent bank statement evidencing receipt of income from the SSA; A Proof of Income letter or Benefits Letter that evidences income from the SSA. (Visit for an explanation of types of letters issued by the SSA o In addition to verification of income, MHL must document the continuance of this income by obtaining from the borrower; A copy of the last Notice of Award letter which states the SSA s determination on the borrower s eligibility for SSA income, or Equivalent document that establishes award benefits to the borrower If any income from the SSA is due to expire within three years from the date of loan closing, that income may only be considered as a compensating factor. FHA /18/13

3 EMPLOYMENT VERIFICATION AND INCOME TYPES CONTINUED o If the Notice of Award or equivalent document does not have a defined expiration date, the lender shall consider the income effective and likely to continue. The lender should not request additional documentation from the borrower to demonstrate continuance of Social Security Admin income. Under no circumstances may lenders inquire into or request documentation concerning the nature of the disability or the medical condition of the borrower. NOTE: Pending or current re evaluation of medical eligibility for benefit payment is not considered an indication that the benefit payment is not likely to continue NOTE: An initial Notice of Award letter (or its equivalent) may specify a start date for receipt of income in the future. Lenders may consider this income as effective income as of the start date specified in the Notice of Award Letter. The borrower must have other income to qualify for the mortgage until the start date for receipt of income. NOTE: Other forms of long term disability income (such as worker s compensation or private insurance) may be considered qualifying income with a reasonable expectation of continuance. You should use procedures similar to those noted above to verify such income. Temporary Disability Borrowers with a continuous 2 year work history who are currently receiving temporary disability (i.e. maternity leave, workman s comp etc.) must provide the follow information from the HR Dept of Borrower s employer; 1. Position held at the time of leave is available to borrower upon return to work at the same income. 2. Human Resource Dept. to state the date borrower is to return to full time employment 3. Borrower to provide letter of intent to return to work. Letter must state date of return. 4. Borrower s temporary income can be used to qualify only if all of the information above is provided. New Employment Follow DU findings and; Borrowers must be employed minimum of 6 months if no immediate employment history (or large gap in employment). Must be salary and must have a prior work history at some point in the past verified with w-2. Explanation for gap in employment will be required. Part Time/Second Job Income Part Time & Second Job income can be used to qualify the borrower if MHL documents; o The borrower has worked at the part time or second job uninterrupted for the past two years, and o Borrower(s) plan to continue Part time or second job income received for less than two years may be included as effective income, provided that the lender justifies and documents that the income is likely to continue. Part time or second job income not meeting the qualifying requirements may be considered compensating factor only. NOTE: For qualifying purposes, part time income refers to employment taken to supplement the borrower s income from regular employment; part time employment is not a primary job, and it is worked less than 40 hours. Contact Underwriting if you have specific questions with regard to secondary job / part time to supplement a full 40 hour work week. This income and employment is eligible for qualifying. All faxed documents must clearly identify the name and number of the party who is verifying Borrower(s) information. RMK FIN. must be able to verify the information given is accurate. Internet downloads are acceptable as long as they include, name, title and number of the person who has verified borrower(s) information. Internet downloads must also include the URL address, date and time printed. Employment Gaps AUS to be followed ***Underwriter discretion is required for borrower(s) explanation greater than 1 month. For information on effective income, see HUD Handbook , paragraphs 4.D.1.a and 4.D.2.a FHA /18/13

4 ASSETS FHA Guidelines Must meet all asset conditions per DU Approve/Eligible Verify, document and determine acceptability of assets being utilized All faxed documents must clearly identify depository/investment firm s name, account number and source of information. MHL must be able to verify the information given is accurate. Internet downloads are acceptable as long as they include, name, institution and the account number. Internet downloads must also include the URL address, date and time printed. Acceptable sources of funds; o Depository Accounts if a Verification of Deposit (VOD) is obtained, a statement showing the previous month s ending balance for the most recent month is required. If the previous month s balance is not shown, then obtain statement(s) for the most recent 2 months to verify sufficient funds to close. NOTE: If the borrower does not hold the deposit account solely, all non borrower parties on the account must provide a written statement that the borrower has full access and use of the funds. Documentation must comply with DU Findings. o Gift funds See Down Payment Criteria Section for gift requirements o Stocks and Bonds obtain brokerage statement(s) for each account for the most recent 2 months. The borrower(s) actual receipt of funds must be verified and documented if used for down payment. o Retirement Accounts obtain the most recent statements for each account to verify sufficient funds to close. Document the terms and conditions for withdrawal and/or borrowing and that the borrower is eligible for withdrawals. Use only 60% of the amount in the account unless the borrower presents documentation supporting a greater amount after subtracting any taxes or penalties for early withdrawal. The borrower(s) actual receipt of funds must be verified and documented only if used for funds to close. o Sale of Home/Real Estate obtain a HUD 1 or the equivalent closing statement to evidence the sale of the property. If the borrower is being transferred by his or her company under a guaranteed sales plan, obtain an executed buyout agreement and accompanying settlement statement indicating that the employer or relocation service takes responsibility for the outstanding mortgage debt. Earnest Money Deposit Verify and document the deposit amount and source of funds. Large Deposits If there is a large increase in an account, or the account was recently opened, borrower must provide a credible explanation and document the source of funds. All large deposits exceeding income deposits must be sourced and seasoned. RESERVES NOT required. Determined by DU unless otherwise noted below. 1 or 2 Unit verify all cash reserves are submitted thru AUS 3 or 4 Unit regardless if the transaction is a purchase or refinance, 3 months reserves in liquid funds are required after closing. Gift funds and proceeds from the transaction are not permissible to meet the reserve requirements. Funds received from subject transaction cannot be counted to meet the reserve requirements. (i.e. cash received from a refinance transaction) See asset section above for acceptable sources of funds. SUBORDINATE FINANCING SELLER CONTRIBUTIONS Subordinate Financing allowed The CLTV is limited to 100% (of the lesser of the sales price or appraised value) when the FHA first lien is combined with a subordinate lien from an instrumentality of government or government agency that is providing down payment and/or closing cost assistance in the form of secondary financing. Limited to 6% of the lesser of the property s sales price or appraised value FHA /18/13

5 TEMPORARY BUYDOWNS TEMPORARY BUYDOWNS DOWNPAYMENT CRITERIA All loans, regardless of LTV require mortgage insurance. Mortgage Insurance Premiums are listed below as Upfront Amount/Monthly Fee. CASE NUMBERS ASSIGNED PRIOR TO APRIL 1, 2013 ALL LOAN PURPOSES Loan Terms > 15 Years LTV/Base Loan Amount 95% > 95% <=$625, %/1.20% 1.75%/1.25% >$625, %/1.45% 1.75%/1.50% Loan Terms 15 Years LTV/Base Loan Amount 90%* > 90% <=$625, %/0.35% 1.75%/0.60% >$625, %/0.60% 1.75%/0.85% * Note: Loans with terms 15 years and LTVs 78% have no Annual (Monthly) premium. CASE NUMBERS ASSIGNED ON OR AFTER APRIL 1, 2013 AND PRIOR TO JUNE 3, 2013 Loan Terms > 15 Years LTV/Base Loan Amount 95% > 95% <=$625, %/1.30% 1.75%/1.35% >$625, %/1.50% 1.75%/1.55% Loan Terms 15 Years LTV/Base Loan Amount 90%* > 90% <=$625, %/0.45% 1.75%/0.70% >$625, %/0.70% 1.75%/0.95% * Note: Loans with terms 15 years and LTVs 78% have no Annual (Monthly) premium. Loan Terms >15 Years: Cancellation of the annual (monthly) premium will occur when the LTV reaches 78% of the original appraised value, provided the borrower has paid the premium at least five years Loan Terms <=15 Years: Cancellation of the annual (monthly) premium will occur when the LTV of the original appraised value, even if the borrower has been paying the premium less than five years CASE NUMBERS ASSIGNED ON OR AFTER JUNE 3, 2013 ALL LOAN PURPOSES Loan Terms > 15 Years LTV/Base Loan Amount 95% > 95% <=$625, %/1.30% 1.75%/1.35% >$625, %/1.50% 1.75%/1.55% Loan Terms 15 Years LTV/Base Loan Amount 78% >78% and 90% > 90% <=$625, %/0.45% 1.75%/0.45% 1.75%/0.70% >$625, %/0.45% 1.75%/0.70% 1.75%/0.95% For all loan terms with LTVs <=90% cancellation of the annual (monthly) premium will occur after the borrower has paid the premium for eleven years For all loan terms with LTVs >90% the annual (monthly) premium will continue for the loan term Not Allowed Borrower(s) minimum down payment requirements 3.5% of the lesser of the appraised value of property or sales price and any borrower closing costs & fees. Borrowers that pay any costs out of closing (POC) i.e. appraisal, credit etc. and will be applying that cost towards their 3.5% down payment, must document and source that the funds came from and cleared borrowers account, prior to Final Loan Approval and/or Loan Docs. If a credit card is used, those funds cannot be applied towards the 3.5% down payment. Acceptable sources of funds: o Earnest money deposit o Checking and savings accounts o Savings Bonds o IRAs o 401K & Keogh accounts o Stocks & Bonds o Thrift Savings o Sales proceeds o Sale of personal property o Gift (from an acceptable source/fully documented) FHA /18/13

6 Gift Requirements O It is the Underwriter s responsibility to review and clear all conditions that apply to the gift funds. o If gift conditions are moved to Prior to Funding they will be required to be UTR Underwriter to Review condition ONLY. Funding dept. will NOT be allowed to clear gift funds condition. o Condition must be cleared by Underwriter or Underwriting Manager with a DE Authority. o If condition is cleared by someone other than the original DE Underwriter, the DE clearing the UTR Conditions will be required to notate that they cleared the gift funds on the LT with their Chums#. If the gift funds. Are in the borrower s account Then.. Obtain A copy of the withdrawal document showing that the withdrawal is from the donor s account, and The borrower s deposit slip & bank statement showing the deposit DOWNPAYMENT CRITERIA CONT. Are to be provided at closing, and Are in the form of a certified check from the donor s account Are to be provided at closing, and Are in the form of a cashiers check, money order, official check or other type of bank check Are to be provided at closing, and Are in the form of an electronic wire transfer to the closing agent Are being borrowed by the donor, and documentation from the bank or other savings account is not available Obtain Bank statement showing the withdrawal from donor s account, and Copy of the certified check Have the donor provide a withdrawal document or cancelled check for the amount of the gift, showing that the funds came from the donor s personal account Have the donor provide documentation of the wire transfer. NOTE: The lender must obtain and keep the documentation of the wire transfer in our loan file. While the documentation does not need to be provided in the insurance binder, it must be available for inspection by FHA s Quality Assurance Division (QAD) when that office conducts it s onsite review of lenders Have the donor provide written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction, including the lender IMPORTANT: Cash on Hand is NOT an acceptable source of gift funds OTHER REAL ESTATE Max number of financed properties = 4 Max number of FHA loans = 1 (see Underwriting for FHA exceptions). FHA /18/13

7 MISCELLANEOUS CRITERIA APPRAISAL REQUIREMENTS Each borrower (regardless of income source) must complete and sign separate IRS Form 4506 T at application and again with loan documents. 4506T requirements (follow D/U requirements); Process 4506T based on AUS findings. If most recent year has an extension a 4506 must be processed and state no record, a copy of the extension must be obtained and evidence of any monies owed must be documented paid to the IRS or evidence of refund. In cases of W 2 borrowers with extensions a 4506 for the W 2 should be processed for the extension year. If 4506T results reflect income/loss information that we did not have documented in our file we must require two years 1040 s that match the 4506 results. AT NO TIME CAN THE W2 RESULTS REPLACE THE REQUIRED 4506T RESULTS One full appraisal required FHA Certified Appraiser 1004D as required by appraisal or DE Underwriters conditions Age of Appraisal Appraisal report is good for 120 days, but if appraisal is 90 days or older at funding, the following will be required; o A recertification of value performed by the original appraiser on a 1004D only. o If the appraisal does exceed 120 days, the case # must be cancelled and a new case # issued, prior to ordering the new appraisal. Non Permitted Room Additions require; o The quality of the work to be described in the appraisal and deemed acceptable Workmanlike Quality by the appraiser. o The addition does not result in a change in the number of units comprising the subject property. (i.e. a 1 unit converted into a 2 unit) o If the appraiser gives the unpermitted addition value, the appraiser must be able to demonstrate market acceptance by the use of comparable sales with similar addition footage as the subject property. o Non permitted additions are typical for the market area and a typical buyer would consider the unpermitted additional square footage to be part of the overall square footage of the property. o The appraiser has no reason to believe the addition would not pass inspection for a permit. OVERALL CREDIT RETAIL CREDIT INSTALLMENT CREDIT Determined by DU Inquiries on Credit Report Detailed letter of explanation (LOE) required by the borrower. NOTE: These inquiries that may potentially result in obligations incurred by the borrower(s) for other mortgages, auto loans, leases, or other installment loans must be explained. Age of Credit Report- If a credit report is 45 days or older, the file must be reviewed by the approving Underwriter. o The original credit report can be used to fund the loan, but CANNOT be older than 90 days at funding. o If there are changes to the credit, file must be re underwritten to include the changes. Non Traditional credit NOT allowed Credit Cards are not allowed to be paid off to qualify, unless all funds being used to pay off the credit cards are borrower(s) own funds (401K or gift not allowed). Revolving accounts MUST be closed if paid off. Collection Accounts Collections and judgments indicate a borrower s regard for credit obligations, and must be considered when analyzing the credit. The borrower must explain any collections or judgments in writing. Collection accounts are not required to be paid off as a condition of mortgage loan approval. Court ordered judgments must be paid off before the mortgage loan is eligible for FHA insurance. FHA /18/13

8 Disputed Accounts If the credit report reveals that the borrower is disputing any credit account or public records, A NEW credit report with the disputed accounts resolved MUST be obtained and a NEW DU decision obtained: unless the following circumstances apply: o The disputed account has a zero balance o The disputed account is marked as paid in full or resolved o The disputed account is both Less than $500.00, and More than 24 months old MHL is responsible to include that following liabilities; o Debts disclosed on the borrower(s) credit report o Debts disclosed on the borrower(s) mortgage loan application Alimony Child support Separate maintenance agreements Negative rent on other real estate owned Mortgage debt (PITI) on other real estate owned Installment debt NOTE: Because of the tax treatment of alimony, you may reduce the borrower s monthly gross income by the amount of the alimony payments rather than include it as a debt obligation. If this option is chosen, do not include the alimony payment as a liability. NOTE: Installment debts with fewer than ten payments remaining maybe excluded from the ratio calculation. However, payments that could significantly impact the DTI, greater than $100, may not be excluded. DE u/w must approve. Underwriter is required to review bank statements (if applicable) for any recurring debts that could result in payments not included on the credit report or loan application. These payments could impact the DTI (i.e. auto loan, automatic withdrawals, credit cards, school loans, time shares, child support not documented by a divorce decree, payroll deductions, etc.) Non Purchasing Spouse Except for obligations specifically excluded by state law, the debts of the non purchasing spouse must be included in the borrower s qualifying ratios. The underwriter must determine if the liabilities will have an impact on the borrower s ability to make the mortgage payment. Co Signed Obligations If the individual applying for an FHA insured mortgage is a co signer or is otherwise co obligated (co obligated meaning both parties must be financially liable for the debt in order to exclude the debt from the DTI.) on a car loan, student loan, mortgage, or any other obligation contingent liability applies unless; o The lender obtains documented proof that the primary obligor has been making payments during the previous 12 months on a regular basis, and o Does not have a history of delinquent payments on the loan, and o A copy of the contract etc. to show all parties are financially liable for the loan. BANKRUPTCY Chapter 7 Must be 2 years from the discharge date of bankruptcy Chapter 13 o One year payout period under the bankruptcy has elapsed, o Borrower to provide written permission from bankruptcy court to enter into the mortgage transaction. o Satisfactory re established credit required o Clear CAIVRS FHA /18/13

9 FORECLOSURE OR DEED IN LIEU SHORT SALE None allowed in the last 3 years from the recording date of the Trustees Deed to the date on new contract. A recorded NOD is considered by MHL to be a foreclosure. Satisfactory re established credit Clear CAIVRS Short sale (pre foreclosure) none allowed in last 3 years if delinquent on mortgage at time of short sale. Borrowers are not eligible for new FHA insured mortgage if they pursued a short sale agreement on his or her principal residence simply to; o Take advantage of declining market conditions, and o Purchase at a reduced price a similar or superior property within a reasonable commuting distance Borrower current at the time of Short Sale Borrowers are considered eligible for new FHA insured mortgage IF, from the date of loan application for new mortgage; o All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and o All installment debt payments for the same time period were also made within the month due. Borrowers in default at the time of Short Sale Borrowers in default on their mortgage at the time of short sale (or pre foreclosure sale) are not eligible for a new FHA insured mortgage for three years from the date of the pre foreclosure sale. Exceptions: Lender may make exceptions to this rule for borrowers in default on their mortgage at the time of short sale if; o The default was due to circumstances beyond the borrower s control (such as death of primary wage earner, long term un insured illness etc., and o The review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower s control that caused the default, and o Exceptions require FHA Underwriting Management Approval. HUD MORTGAGE REJECTS On case assignments*** *** DE UNDERWRITERS*** TERMITE REPORTS On the screen shot for the Mortgage Reject, write on any free space: SEE ATTACHED DOCUMENTATION REGARDING REJECT OVERTURN/ REBUTTAL. On your LT, be sure to write in UW Comment section: SEE ATTACHED UW NOTES INCLUDING INFO ON MORTGAGE REJECT OVERTURN On your UW Notes, be sure to give a detailed explanation on what is different or has changed that supported overturning the prior reject. Underline that portion (don t forget, highlighter doesn t show up on what gets seen by FHA or investors). If it is a critical comment, place it in bold or all CAPS or at least underline it. On the actual documentation used to support the overturn, write directly on the supporting documentation used to support overturn of original mortgage reject. Writing notes on paperwork in the files regardless of loan type is now highly encouraged. When a termite report is required, ALL Section 1 items must be cleared by the termite company or a licensed contractor and a termite report clearance must be issued prior to funding. If the clearance states items were completed by others and appear to be completed in a workman like manner. The party that performed the work must meet guidelines noted below & a copy of the bill for completed work must be provided. Section 2 items that are required to be repaired are listed in the table below. The items listed below are the most critical items, but there are other items that may require repair (i.e. Health & safety, structural, misc repairs) Any Section 2 items that are not listed below, but are questionable, should be reviewed with FHA /18/13

10 FHA UNDERWRITING MANAGEMENT for determination of repair requirements. TERMITE REPORTS CONTINUED Section 2 Items Any indication of water leak or stain on ceilings All other major water leaks or stains (includes Hot Water Heater) Loose or broken toilets Broken or inoperable faucets Broken or inoperable doors Mold Broken or cracked windows Structural wood replacement or repairs Cosmetic wood replacement or repairs Requirement for Completion Inspected and/or repaired by licensed roofer Inspected and repaired by a licensed plumber or general contractor. The appraiser or termite company may inspect minor leaks Inspected by appraiser or a licensed contractor Inspected by appraiser or a licensed contractor Inspected by appraiser or a licensed contractor Inspected and repaired by a licensed Mold Abatement Company Repaired by a licensed contractor Structural wood repairs: i.e. A general or building contractor must complete removal & replacement of a patio deck, stairs, walls or beams. All wood that is replaced or repaired must be painted. Exposed wood of any kind is not acceptable. The inspector must state that the wood has been primed and/or painted Cosmetic wood repairs: i.e. doors, door jams, a licensed contractor, or the seller can complete floor molding. All wood that is replaced or repaired must be painted. Exposed wood of any kind is not acceptable. The inspector must state that the wood has been primed and/or painted. REFINANCE RATE/TERM Minimum 620 FICO and above = 55% DTI Maximum loan amount is the lesser of the LTV in the Maximum LTV table or the existing debt calculation as described below. To calculate existing debt, add together the amount of the applicable items listed below, any refund of UFMIP must then be subtracted from the total: o Existing 1 st lien, any purchase money 2 nd lien or any junior liens over 12 months old (CLTV < 97.75%), borrower paid closing costs, prepaid items, borrower paid repairs per the appraisal and lender discount points. o Other fees acceptable by the appropriate Homeownership Center (HOC) o The amount of the existing first mortgage may include up to 60 days interest maximum, but may not include delinquent interest and must be current for month due. o Prepaid expenses may include the per diem interest, hazard insurance, mortgage insurance, and any real estate tax deposits needed to establish the escrow account. If the property was acquired less than one year before the loan application, the lower of the two calculations, 97.75% of original value or the original liens of the property w/o closing costs & prepaids must be used. Subordinate financing may remain in place (up to 97.75% CLTV) if the homeowner qualifies with scheduled payments on all liens. NOTE: $500 cash back is allowed for minor adjustments in Estimated HUD 1 versus Final HUD 1. *** SEE SEPARATE GUIDELINES FOR FHA STREAMLINE REFINANCES *** CASH OUT REFINANCE Minimum 620 = 50% DTI (AT UNDERWRITER DISCRETION***) 640 and above = 55% DTI 85% Max LTV based on the current appraised value, subject to all of the following. o Property has been owned and the borrower s principal residence for at least 12 FHA /18/13

11 HUD REO PROPERTIES months prior to loan application date. o No payment may be more than 30 days late within the last 12 months. Payment must be current for the month due. (NO EXCEPTIONS) o 1 2 units only o New secondary financing is limited to 85% CLTV. o Any co borrower added must be an occupant of the property and credit qualify. Repairs and improvements required by the appraiser as essential for property eligibility may be added to the sales price before calculating the mortgage amount. For the cost of repairs and improvements to be eligible for inclusion in the mortgage amount, the sales contract or addendum must identify the borrower has an escrow repair allowance. The amount that may be added to the sales price before calculating the maximum mortgage amount is the lowest of: a) The appraisers estimate of repairs and improvements; or b) The amount of the contractors bid, if available. Only repairs and improvements required by HUD and/or appraiser may be included. The amount that cannot be financed into the mortgage will become part of the borrower s required cash investment. Lender must establish an escrow account to ensure completion of all required repairs. Maximum loan amount: o Value or sales price (+) repairs (less) 3.5% = base loan amount (+) UFMIP financed = Maximum Loan Amount (not to exceed 100% LTV) HUD Appraisalso HUD provides an FHA as is appraisal for establishing market value. o Validity period HUD appraisals are valid for a period of 120 days from the effective date of the appraisal. Appraisal validity period can be extended up to 30 additional days in order to close escrow. Contract MUST be ratified prior to the 120 day expiration date to allow the 30 day extension o If the appraisal expires, it is the buyer s responsibility to pay any associated fees for a new appraisal. Neither HUD nor BLB will order or pay for it. o HUD will not renegotiate or adjust the purchase price after contract ratification. o If a buyer is securing FHA financing, the lender will be required to use HUD s FHA as is appraisal unless HUD s appraisal is over 4 months old at the time of contract acceptance. A second appraisal may not be ordered to support a higher purchase price. In the event the appraisal is over 4 months old at the time of contract ratification, the buyer will be required to obtain a new FHA as is appraisal at the buyers expense. o If the buyer is securing a loan that does not involve FHA financing, then the buyer s lender will order a new appraisal on the property at the buyer s expense, regardless of whether they overbid the property or not. Pools: Pools are not be filled at any time. o HUD REO Properties do not require pools to be filled, which differs from frontend FHA transactions. o Pools are not required to be covered as long as there is a secure fence surrounding the backyard. o FHA lenders are to obtain an as is statement from the buyer accepting the pool in as is condition. FHA /18/13

12 $100 DOWN HUD REO Minimum LTV requirements do not apply to HUD REO transaction Available on 15 and 30 year fixed rate terms only. HUD s appraisal must be used. If HUD s appraisal is expired, then an updated appraisal must be completed by an FHA approved appraiser. Non-occupant co-borrowers are allowed Must meet standard credit score requirement DU Ineligible findings are acceptable as long as it is due to the lack of down payment only Borrower is not required to meet the minimum borrower contributions with this program Eligible Financing Cost: the costs of the UPMIP may be financed in the FHA loan provided the total loan amount (including UPMIP) does not exceed 100% of the property as is appraised value. Ineligible Financing Costs: prepaid expenses and standard closing costs may not be financed in the FHA loan. However, HUD may pay buyer closing costs up to 3% of the sales price. For a list of eligible properties, go to: FHA(b) WITH ESCROW REPAIRS A property that requires no more than $5,000 for repairs to meet FHA s Minimum Property Requirements (MPR) as estimated by the Property Condition Report and as reviewed and determined to be reasonable by the appraiser, is eligible to be marketed for sale in its as-is condition under the MPR. Must receive a DU Approve/Eligible or Approve/Ineligible and the Ineligible may only be because the loan exceeds the max loan amount limit or LTV by the amount of the repairs. All loans using the Repair Escrow program must meet the following restrictions: HUD REO properties only Fixed Rate terms only Manufactured Homes not allowed The max LTV can be exceeded by the amount of the financed repairs (up to 110% of $5,000 or a max of $5,500) Repairs must be complete within two weeks The repaired escrow only applies to the FHA203(b) financing The repairs that are required are already in the purchase contract and part of the listing. There may be additional items at the time of appraisal that may need to be addressed, in which case the Underwriter will request an increase to the amount of repair up to $5,000. PROPERTY TYPES Single Family Residence ELIGIBLE 1-4 Units Modular Homes HUD Approved Condos (project must be 51% owner-occupied) Site Condos PUDs Attached and Detached Log Homes INELIGIBLE Condos Without HUD Approvals. Mobile homes. Condotels. Hotel Condominiums Mixed-Use Co-ops Manufactured Homes Leasehold Condos Timeshares FHA /18/13

13 INELIGIBLE 3-4 UNIT PROPERTIES CONDOS COMPENSATING FACTORS Geodesic dome, Earth or Geothermal homes Working Farms and Ranches Property currently in litigation Properties in a flood zone that do not participate in the National Flood Insurance Program Properties with individual water purification systems (an individual water purification system is a system that is needed to make the water safe and meet code when the individual water supply is unsafe for human consumption unless the system is operating properly. This is not a system that is installed to improve the taste or softness of the water. Properties with individual water purification systems can be identified by reviewing the appraisal.) Properties with hauled water Indian land (leased or fee simple) Properties rated in "less than average" condition (unless using the HUD Repair Escrow program, and then must comply with HUD requirements for property) No gifts allowed for reserves 3 month PITIA in reserves required The property must be self-sufficient (i.e. the maximum mortgage is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100%) Condo projects with any unit in the project that is less than 400 square feet are not eligible Condos involved in monetary litigation are not permitted. Compensating factors used for mortgage approval must be supported by documentation. The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past months. (SUPPORTED BY CANCELLED CHECKS) The borrower makes a large down payment (ten percent or more) towards the purchase of the property. The borrower has demonstrated an ability to accumulate savings and a conservative attitude towards the use of credit. Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses. The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits. There is only a minimal increase in the borrower s housing expense. The borrower has substantial documented cash reserves (at least three months worth) after closing. In determining if an asset can be included as cash reserves or cash to close, the lender must judge whether or not the asset is liquid or readily convertible to cash and can be done so absent of retirement or job termination. Funds borrowed against these accounts may be used for loan closing, but are not to be considered as cash reserves. Assets such as equity in other properties and the proceeds from a cash out refinance are not to be considered as cash reserves. Similarly, funds from gifts from any source are not to be included as cash reserves. The borrower has substantial non taxable income (if no adjustment was made previously in the ratio computations). The borrower has a potential for increased earnings, as indicated by job training or education in the borrower s profession. The home being purchased as a result of relocation of the primary wage earner, and the secondary wage earner has an established history of employment, is expected to return to work, and reasonable prospects exist for securing employment in a similar occupation in the new area. The underwriter must document the availability of such possible employment. *** THESE MHL FHA GUIDELINES WILL BE PERIODICALLY UPDATED AND ARE SUBJECT TO CHANGE WITHOUT NOTICE *** FHA /18/13